Will forex fintechs survive their own market disruption?
JOHANNESBURG – “Fintech”, “market disruptors”, “AI chatbots ” – all keywords used in my industry to describe some of the ways technology has changed our sector over the last few years. Now, I do value and appreciate technology and the role it plays in all our industries, we also have to be mindful that businesses need to remain profitable to continue providing a great service.
Market disruptors or a scramble for market share?
Many money transfer market disrupters entered the industry quickly and, in many instances, with unrealistic offers. They were (are) providing a loss leading service to gain valued market share. This seems to have worked and some fintechs reported millions of new customers in their first year of operation. Offering mid-market wholesale exchange rates with no fees meant that any margins, operational, advertising, marketing and banking costs would effectively leave the company with market share but running at a loss.
Now, while we have all taken advantage of a “first time buyer offer”, we need to be mindful that this trend cannot be sustained. For a business to remain profitable (or at least break even) and continue to offer a half decent service, costs eventually need to be covered.
With the current economic circumstances, this loss leading model is now on the Financial Conduct Authority’s (FCA’s) radar and it has now added this to its priority review of payment firms: “Some firms are growing rapidly and many are unprofitable, while they seek to grow market share. We are concerned that the pandemic will affect payment services firms’ financial strength and may impact the availability of external funding. This means that firms that need to regularly raise fresh capital to remain solvent may fail.”
The fintechs themselves also seem to have come to the realisation that they need to be making money in order to become profitable and some of them have made a sharp U-turn on their fee structure.
Has the industry now reached a point where the market share has been gained and the too-good-to-be-true introductory offers will slowly slip away, perhaps without the client’s knowledge?
There are many brokers out there that don’t condone such margin creep and ensure that new and existing clients are treated fairly. I like to think we as human beings appreciate an open and transparent service where we can grow to value the trading relationship more as time goes on, but not at an ever-higher cost.
Where’s the customer service?
Ever been stuck in a never-ending loop chatting to a robot? Cutting down on the number of human brokers may save costs, but what happens if customers need help? Another issue with many fintech disruptors is that they’re so automated that it’s very difficult to talk to a real person if things go wrong.
It is so important to select a foreign exchange partner that provides you with the level of service, expertise and price that you can grow to like, know and trust.
Saskia Johnston is senior business development manager at Sable International.